STANSBERRY

INTERNATIONAL

DECEMBER 2013

“Sshhh, don’t tell anyone,” my friend grinned over his wine glass. “It’s Spain’s best-kept secret...”

My friend and I (Brett Aitken) were sharing dinner in the restaurant El Ñeru, near Madrid’s historic Puerto del Sol neighborhood in the center of the city.

The restaurant featured cuisine from Asturias, a beautiful region that lies in the north of Spain, known for its sandy beaches, rugged coastal cliffs, and a mountainous inland terrain, which includes the 8,530-foot-plus Picos de Europa (Peaks of Europe).

This was 1996, and I was traveling around Europe after having spent eight years in Australia. I was looking over the menu and rubbing my eyes in disbelief... everything seemed so cheap... especially the wine. Spanish wines, including Tempranillos from the Rioja and Ribera del Duero regions, are among the world’s best. And yet, even when converting the menu prices from Spanish pesetas to pound sterling or dollars, all the prices seemed like pocket change.

Even having been in Spain for only a few weeks, I had already heard similar comments a few times. When asked, every person I met said it wouldn’t last... once word gets out, we’ll have to pay a lot more for the stuff.

But back then, everything was cheap in Spain. You name it... property, stocks, hotels, restaurants, food, and wine. It’s one reason I eventually relocated there to live.

At the time, Spain was best known for its beaches and sunshine. Most northern Europeans head south in the summer, and Spain attracts many of these visitors. But most of its products and services were relatively unknown

in the world’s markets.

Spanish entrepreneurs and executives hardly spoke about exports. That struck me as odd, considering the country had more than 300 million neighbors in Europe with whom it could trade freely. And the country had many outstanding products and services that could easily compete anywhere on the planet.

Of course, my friend was right. It didn’t take long for the world to discover Spain’s bargains... By the 2000s, things were heating up. The markets were changing.

And the wine that cost me roughly $10 in 1996, now sets me back at least $30.

Of course, the phenomenon is not unique to the wine industry. Over the past 15-plus years, a variety of Spanish industries have expanded into foreign markets. One sector, in particular, has made significant progress expanding its global reach... engineering.

Spain has always boasted several of Europe’s top engineering firms... But these firms that build roads, bridges, buildings, airports, tunnels, power plants, and energy pipelines were another of the country’s “best-kept secrets.”

Many had done well over the years building out Spain’s magnificent infrastructure (which we’ll cover in a minute). These firms had begun operating in international markets... which they needed to continue their sales growth.

One firm in particular stands out today. Its headquarters are in Asturias, and it has been around for more than 150 years. It has evolved into a recognized player in

How We’ll Make 60% or More as This Spanish Firm Exports Its Expertise

Country Real Interest Rate 2014 Est. P/S 2014 Est. P/E 2014 Est. P/BV Yield

Greece 10.79 0.6 20.9 1.2 1.6%

Brazil 7.17 0.9 10.2 0.9 4.0%

Portugal 6.18 0.7 19.8 1.2 3.0%

Colombia 5.24 1.9 13.8 1.0 3.1%

Spain 3.97 1.0 13.8 1.3 4.9%

Poland 3.72 0.9 13.1 1.3 4.6%

Italy 3.57 0.5 12.2 0.8 3.7%

Ireland 3.45 1.1 16.4 1.2 1.9%

New Zealand 3.38 1.0 15.4 1.7 4.8%

Mexico 3.10 1.6 17.8 2.5 1.5%

Stansberry International Global Navigator

international markets. Its sales and earnings are growing constantly.

Even better, global investors have not yet caught on, and its shares don’t reflect its new global presence... yet.

We believe the market undervalues its share price by a wide margin. It’s trading cheap. Based on our valuation metrics, it’s cheaper today than in 1996... and it’s priced well below the overall Spanish stock market.

At current prices, it pays a rich 6.8% annual dividend. We believe its shares could rise by 60% over the next 12-18 months... and they would still represent a fair value.

But before we get to the details, let’s look at what our global navigator is telling us about our opportunities in Spain...

You’ll find our Stansberry International Global Navigator on p. 2. This set of charts and tables is like our investing GPS, pointing out where we can find value and a potential uptrend across the world’s markets.

To start, please note the Stansberry International Value Monitor chart and table. They compare various countries based on their real interest rates (we measure real interest rates by taking the yield on the 10-year bond and subtracting inflation) and the value of their stock markets (as measured by the average 2014 estimated price-to-sales ratio of each country’s benchmark stock index).

As we mention in the primer that accompanies this service – the “Stansberry Guide to International Investing” – we’re looking for outliers. We want the countries with the highest real interest rates and the cheapest overall stock market.

History tells us that when extremely high real interest rates coincide with super-cheap stock prices... a big market upswing is imminent.

To facilitate an easy comparison, we value all markets based on their price-to-sales ratios because varying accounting standards make using price-to-earnings ratios or price-to-book-value ratios unreliable.

Looking at the chart, in general, we’re interested in countries that appear in the upper-left quadrant. (We’ve circled our “sweet spot.”) That’s where real interest rates are high and stock prices are low. Greece continues as the clear outlier on the chart, with real interest rates at 10.8%. Brazil climbs a spot, as its real interest rates shot up by almost 1.6% over the past month. Spain remains in the fifth spot on the table, while Mexico sneaks into the top 10 this month in place of Chile.

As we said last month, we’ve had Brazil, Italy, and Spain on our radar. Spain caught our attention recently due to large amounts of foreign investment pouring into the country... particularly into the beaten-down property sector.

Spain also offers among the highest dividend yields across all the countries we monitor. Among the 10 countries with the highest real interest rates (shown above), Spanish stocks offer the highest yields at an average of 4.9%. Of all the countries we watch, only Russia comes in higher at 7.4%. This month’s recommendation pays a 6.8% dividend.

As you can see in the above chart, Spain’s stock market hit a bottom around mid-2012. Since then, it has climbed to more than 50%. That’s a big jump in a short period. But it’s still down 40% from its 2007 highs of around 15,800. Its overall market trades at about one times sales. For comparison, the U.S. benchmark S&P 500 stock index trades at 1.6 times sales – 60% higher than the Spanish exchange.

A Snapshot of Spain

Spain’s population is around 47 million. Madrid, its capital and largest city, has a metropolitan area calculated at close to 6 million people. It’s located in the center of the country at approximately 650 meters altitude (2,190 feet), giving it bragging rights as the highest capital city in Europe. The closest beaches are about 300km (186 miles) away in Valencia, where they hosted the prestigious America’s Cup sailing event in 2007.

Spain’s second-largest city is Barcelona. Located on the Mediterranean coast, it has about 3.5 million people, counting its surrounding districts. The French border sits just 160km (100 miles) to the north. Many say the 1992 Olympics put Barcelona... and perhaps Spain... on the map.

Getting around the country is a breeze. Spain has some of the best infrastructure you’ll see anywhere on the planet. (Thanks in large part to this month’s recommended company and its peers.) You can drive the two- and three-lane motorways around and through the entire country. Its top two airports are world-class. Madrid extended its airport in 2006 to give it capacity for up to 70 million passengers per year. Barcelona opened its new airport in 2009 with capacity for 55 million passengers.

And Spain boasts the largest high-speed train network in Europe, with around 3,100km (1,926 miles) in circulation. It’s the second-largest in the world behind China’s.

Spain’s most famous industry is tourism. The south, along the Mediterranean and Atlantic coastlines, is where the sun shines most and boasts some of the best spots for vacations. The Ministry of Industry just reported that the

country’s tourism industry saw $71 billion spent between January and October this year. Tourists from Britain, Germany, France, and the Nordic countries spent the most. The country expects to host 60 million tourists during 2013.

But some say if you draw a line across the middle of the country and head north... that’s where all the business is done. Of course, that’s an oversimplification. But it’s true, Spain’s key industrial regions include Madrid, Catalonia, and the Basque region in the north. This month’s pick is located in the northern region of Asturias.

Where It All Went Wrong

In our Guide to International Investing, we said we look for opportunity in crises...

A crisis isn’t hard to find. One that’s getting better is a lot more difficult to judge. What we’ve found is that most foreign markets reach bottoms only after the headlines have faded away.

Spain more than qualifies. Although Greece earned most of the terrible headlines during Europe’s recent economic crises... Spain has endured plenty of economic misery and required its own form of international bailout to shore up the banking sector.

Spain’s current troubles date back to the beginning of the euro. Spain agreed to adopt the multinational euro currency in January 1999, though the money didn’t hit the streets for another three years.

In 1995, the yield on the Spanish 10-year bond traded at more than 12%. When the euro became official in 1999, the yield was down to a little more than 4% – about where it sits today (more on that in a minute). This was, of course, part of the reason for the euro... allowing European governments with shakier credit to borrow cheap on the stronger credit of nations like Germany and France.

Since the euro hit the streets in 2002, through to 2007, Spain’s gross domestic product (GDP) had grown at rates ranging between 2.2% and 4.2%. From 2004 through 2007, the government ran a budget surplus that reached 2% in 2007. Unemployment dropped from 20% in 1995 to around 8% in 2007. And reports indicate labor costs rose by more than 50%.

When credit is cheap, people tend to use it. And you can see in the chart at the top of this page how Spanish debt levels ballooned through the first part of this century. The chart plots outstanding business and consumer credit. Clearly, most of Spain’s boom was built on credit.

It wasn’t just individuals overspending. Excessive spending without proper planning reached absurd levels. Regional governments supported and endorsed huge projects, while regional banks provided financing. Multimillion-dollar airports and toll roads are among some of the extravagances.

One example that stands out was an airport built in Ciudad Real, south of Madrid. Reports say it cost €1.1 billion ($1.4 billion) to build. It had one of the longest runways in Europe, and the future capacity for up to 10 million passengers. It closed four years later when its management company went into receivership. Subsequent reports suggest it had a flawed business model from the outset and that the only profits made were by those who built the thing.

Much of the worst excess was in the housing market. Like Americans in the early 2000s, Spaniards used cheap credit to buy up housing stock and created a huge property bubble.

The country’s property boom began around 2000 and went parabolic around 2006-2007. The below chart shows the monthly number of new buildings constructed from 1995 through today. But the build-now-and-pay-later logic caught up all those involved, including homebuyers, developers, and banks.

When the credit bubble burst, the country was overextended. Mortgages on individual houses turned

upside down, as homeowners owed more than the properties were worth.

Adding to Spain’s woes, productivity hadn’t risen sufficiently to offset the higher labor costs. The country had lost its competitiveness. Many international companies left, and local firms were forced to reduce staff numbers or renegotiate contracts.

Unemployment went from 8% in 2007 to around double that at 15% a year later. By 2010, it was more than 20% and remains around 26% today.

As people lost their jobs and couldn’t meet mortgage payments, they started returning their house keys to the banks.

Property developers were also up to their neck in debt. Martin Fadesa, a large developer, declared bankruptcy in 2008, owing more than €7 billion ($9.6 billion). Another, Reyal Urbis, filed this year, owing €3.6 billion ($5 billion).

Many regional banks that had gleefully financed mega-projects were left holding the bag. The Bank of Spain – the nation’s central bank – rescued its first regional lender Caja Castilla-La Mancha, which had financed a major share of the Ciudad Real airport. Spain created the Orderly Bank Restructuring bailout fund (FROB) with €99 billion ($122 billion) in firepower.

The central bank merged regional banks (called Cajas) in an effort to reduce costs. Among them, it formed Bankia from several different savings banks with the purpose to integrate them into one organization. That bank listed in July 2011. It was a complete disaster and needed a €19 billion ($26.2 billion) bailout last year. Shares have gone from more than €45 ($62) in 2011 to trade around €1 ($1.37) today.

In June last year, the country’s new finance minister agreed to request a €100 billion ($137.5 billion) loan from Europe to recapitalize Spain’s troubled banks. So far, it has only used about €41 billion ($56.4 billion), according to recent reports – about half going to Bankia.

Since then, FROB and the private sector have formed a new “bad bank” called Sareb with the purpose of cleaning up the banking sector. Sareb received approximately €50 billion ($68.7 billion) worth of assets (properties and bad loans). Its goal is to liquidate over the next 15 years.

Spain’s tax revenue fell while spending increased and its 2007 budget surplus of 2% turned into a massive 11% deficit in 2009.

Culminating all these events, government debt has soared. Spain’s debt as a percentage of GDP totaled 60% in 2000. As at June this year, it represents 92% of GDP. Some

reports suggest it will hit 94% by the end of this year.

Only 12-18 months ago, every newspaper was calling for a breakup in the euro and a full-blown bailout for Spain. But so far, the government has resisted. Now, the property sector is again attracting foreign investment. While it’s our view the labor laws still require broad reforms, they have improved over the past year or so. And the banking sector is looking healthier. Only this week, local newspaper Expansion quoted International Monetary Fund chief Christine Lagarde saying the Spanish banks are now solid and healthy.

And don’t forget, European Central Bank (ECB) chief Mario Draghi said last year, “Within our mandate, the ECB is ready to do whatever it takes to preserve the euro.” And he added: “Believe me, it will be enough.”

The Worst Is Likely Over

Spain still faces many challenges.

Its unemployment rate sits at about 26%. And among the young, the numbers are closer to double that figure. When talking with locals around the country, most agree Spain still has a long way to go. Many small businesses have closed in recent years. The young are now moving abroad where opportunities to find work are better.

Last year, it looked like Spain would need a full bailout... similar to Greece. And while it needed funds to sort out some banking deficiencies last year, so far the poor and declining economic conditions seem to have stabilized... at least for now.

Moody’s just raised its outlook this month from negative to stable, following the lead of other credit agencies S&P and Fitch.

The below chart shows the results of a European Commission survey that monitors people’s outlook for the economy. It incorporates data from the industrial, services,

and retail sectors, as well as consumer-confidence figures. As you can see, confidence is not anywhere near the levels of the late 1990s through 2007. But it’s up off the bottoms seen in late 2008 and early 2009. And it’s up from the recent low last year, when Spain appeared on the verge of a full-blown bailout.

The international markets also seem to see things as improving.

The yield on the country’s 10-year bond has dropped from 5.5% to a little more than 4% in the past 12 months.

Interest in the property sector is also heating up. Over the past few months, we’ve seen large private-equity funds – like Blackstone Group – and big institutional investors – like Goldman Sachs – investing in Spain. This past week, legendary investor George Soros and “Bond King” Bill Gross, who manages the world’s largest bond fund for the investment management firm PIMCO, have signaled their intentions to enter the market.

GDP growth is slowly starting to tick higher. Sure, it’s not yet actually growing... But the contraction is slowing, and GDP is approaching positive growth.

And its exports have recovered from the 2008-2009 lull and continue to climb, as you can see in the chart on the upper left corner of this page.

We believe the worst is now over for Spain. Yes, it faces many challenges and may take several years before it’s back at levels seen before 2007. But remember, that’s our opportunity. We want to get in when things are still looking dim. Then, as the Spanish economy improves over the coming years, we’ll see our investments rise as confidence improves and investors start piling back into these companies.

We’ve put together a list of the top 10 companies that trade on Spain’s major index, the Ibex 35, as you can see on the next page. We’ve listed the companies in order of index weighting.

We’re not recommending these companies as buys. We simply think it’s a good idea to familiarize yourself with the major companies and which sectors they operate.

The top four companies make up approximately 50% of the index. Multinational banks Banco Santander and BBVA hold the No. 1 and 3 spots, respectively. Telecom giant Telefonica sits at No. 2. Inditex, which owns the clothing retailer Zara, is the fourth-largest.

As we mentioned earlier, Spain has several leading companies in construction and engineering. The smaller table on the next page provides a snapshot view of the listed companies in the sector. They don’t all do exactly the same thing, but it gives you an idea of the size of each company, its debt position, and valuation metrics.

Spain’s infrastructure is world class... including some of the best roads, rail, and airports anywhere on the planet.

Also in the infrastructure mix, it has six liquefied natural

gas (LNG) import terminals. That’s the most in Europe. (Next in line, the United Kingdom has four.) Spain’s capacity exceeds its current requirements, so it has begun acting as an intermediary, re-loading cargoes for other destinations. According to a recent report, in the first nine months this year, Spanish shippers had reloaded 38 LNG vessels, which exceeds total reloads done in 2012.

The newest LNG import facility, called El Musel, in Gijón, Asturias, was completed last year.

The company we’re recommending this month, Duro Felguera (MDF.MC), built the two massive LNG storage tanks on the project

This 155-Year-Old Firm Has Become a Global Energy Player

Duro Felguera’s history dates back to 1858, when it specialized in iron and steel production and coal mining. By the end of the 19th century, it was the largest iron and steel producer in the country. It listed on the Madrid stock exchange in 1905. By 1920, it was also producing the most coal in Spain.

Fast forward 60 years... By the 1980s, the company had changed course to focus more on energy infrastructure projects. From our conversation with the company, we learned that, over the years, the company has sold off almost all of its assets in the mining sector.

The company’s head office is in Gijón, Asturias. But as

you’ll see in a minute, its operations are extensive, with projects and operations in Latin America, Europe, the Middle East, Asia, and Africa.

Its expertise covers a wide spectrum of engineering, procurement, and construction (EPC) activities, including energy where it builds power plants. Duro Felguera has built more than 50 power plants including coal-fired, alternate energy (biomass, solar), and geothermal in various countries across Europe and Latin America. Sales for the division in 2012 were up approximately 10% compared with 2009 figures.

Today, Duro Felguera specializes in oil-and-gas projects. For example, it manufactured the tanks for the Gijón

Ticker Name Issuer Industry % Index

Weight Market Cap*

Last

Price*

52Wk

Low*

52Wk

High* P/S

SAN Banco Santander SA Commer Banks 17.85 71,491,215,360 6.2 4.79 6.78 1.63x

TEF Telefonica SA Telephone-Integrated 13.30 52,837,396,480 11.51 9.47 13.14 0.89x

BBVA Banco Bilbao Vizcaya

Argentaria SACommer Banks 11.87 49,174,822,912 8.355 6.18 9.40 2.15x

ITX Inditex SA Retail-Apparel/Shoe 10.84 71,869,997,056 114.15 90.13 121.80 4.35x

IBE Iberdrola SA Electric-Integrated 7.04 27,892,686,848 4.44 3.58 4.79 0.82x

REP Repsol SA Oil Comp-Integrated 5.96 23,659,405,312 18.005 15.01 19.94 0.39x

AMS Amadeus IT Holding SATransactional Soft-

ware 3.13 12,364,450,816 27.56 17.55 28.17 4.04x

ABEAbertis Infraestructuras

SAPublic Thoroughfares 2.70 13,307,748,352 15.525 10.62 16.13 2.96x

IAG International Consolidat-

ed Airlines GroupAirlines 2.04 8,906,212,352 4.328 2.07 4.63 0.44x

FER Ferrovial SABuilding & Construc-

tion 2.00 9,924,393,984 13.425 10.25 14.26 1.26x

*in euros

Name

Market

Cap (Mil-

lions of

euros)

Enter-

prise Value

(Millions of

euros)

Debt to

Equity

Ratio

ROEEV/

EBITDA

Abertis 13,307 26,265 2.37x 10% 9x

Ferrovial 9,924 16,5789 1.34x 11% 18x

ACS 6,932 15,061 2.01x -10% 5x

OHL 2,744 9,285 2.19x 55% 9x

Acciona 2,276 9,861 1.63x 3% 7x

Tecnicas

Reunidas 2,123 1,561 0.07x 29% 10x

FCC 1,859 8,886 8.38x -115% 27x

Sacyr 1,694 8,455 4.81x -11% 38x

Abengoa 1,539 9,891 6.21x 7% 8x

Duro

Felguera 756 635 0.93x 40% 5x

Source: Bloomberg

LNG project and an LNG terminal in Barcelona. It also constructed a combined-cycle, natural-gas-fired power plant in Venezuela. Duro Felguera has built petrochemical plants in Mexico and LNG maritime terminals in Brazil. It recently began a number of different oil-and-gas projects in Saudi Arabia, Colombia, and Peru. Since 2009, sales climbed almost 15% through 2012.

And the company still provides products and services related to every phase in mining projects from feasibility studies to construction. It has built coal-storage facilities in Argentina, iron-ore plants in Venezuela, and loading terminals in Spain. This division has seen sales increase by around 8% since 2009.

And this year, Duro Felguera secured a massive €432 million ($591 million) contract with Korean giant Samsung for an iron-ore processing plant in Australia. This is significant. Not just because of the size. But it also gets the company some exposure to the immense mining sector in Australia and additional exposure in the Asian region. Aside from this Australian project, the company has mining projects in Belarus, Mauritania, and India.

Duro Felguera’s manufacturing, services, and other activities include projects in England, Holland, Mozambique, and Paraguay.

Sales and earnings can be a little lumpy in this business, it has large contracts that can influence earnings from one quarter to another. But as you can see in the following chart, Duro Felguera’s annual earnings are enjoying a steady climb since 2003.

Over the past 12 months, sales have come in at €793 million ($1.1 billion). International sales have grown from 47% in 2009 to hit 87% last year.

Latin America has made up a large percentage of sales. Last year, the region accounted for more than 60%, and Venezuela alone represented 40% of sales. That may cause concern for investors considering Venezuela’s volatile political history. So we asked the company to detail its

exposure to the country. Duro Felguera’s main Venezuelan project – a combined-cycle power plant – is nearing completion, but the company expects to pursue other ongoing opportunities there. Company executives said they recognize the risks involved in doing business there and structure their deals to protect the company.

For example, Duro Felguera usually negotiates its contracts in U.S. dollars or euros (with the exception of the local labor deals, which they pay in the local currency and usually represent about 10% of the total contract). And it requires partial payment in advance for its work.

Duro Felguera also requires additional payments at specific milestones during construction and once it has completed the work. It’s something for investors to monitor, but with the company’s experience in the region, we’re not concerned in the short term... especially since its new contracts give Duro Felguera’s backlog a much more diversified portfolio moving forward.

Now, as we said, sales and earnings can bounce around a bit. So the company’s order book can give us an idea of the direction of its business. It’s a good measure to see how the company’s next couple of years look and how it is managing new orders and backlog.

In the below chart, you can see Duro Felguera’s backlog declined a little from its 2009 high of more than €2 billion ($2.75 billion). But the past three years have seen growth return. As of the end of September, it had close to €1.9 billion ($2.6 billion) in backlog.

The company’s backlog also reflects improved geographical and sector diversification. As you can see, Spain accounts for just 3% of Duro Felguera’s order book and the rest of Europe-Middle East-Africa (EMEA) comprises another 27%. The Asia-Pacific region represents 29% of the backlog. Latin America makes up 41%, of which Venezuela accounts for about 15%. Mining and handling made up 46%, energy 35%, oil and gas 11%, and the rest across manufacturing and services.

We’re delighted with the sales and earnings growth. And we’re thrilled to see the diversification in its backlog across the various sectors and different regions. This should boost investor confidence.

Management’s Interests Aligned with Ours

We often talk about how management should have “skin in the game.” We think it’s important for top executives and board members to be invested in the company, as it aligns their interests with those of the other shareholders. Here, management controls more than 30% of the stock. Around 25% sits with Vice Chairman Juan Gonzalo Alvarez Arrojo.

Management’s performance is showing up in the results. Last year, its return on equity came in at 41%. Its 10-year average is 29%, with the past five years averaging 42%. Those are outstanding returns.

And Duro Felguera knows how to look after shareholders. So far, the company has paid out €0.26 (roughly $0.36) in dividends this year. Another €0.06 ($0.08) payment goes out on the 17th of this month, bringing the total dividends for 2013 to €0.32 ($0.44). At today’s share price of around €4.70 ($6.46), that’s a 6.8% yield.

We expect the dividends to continue. But you should know that the company did reduce the last two dividend payments... down from €0.10 ($0.14) to €0.06 per share. It hasn’t made any official announcement to cut it further. And we can’t know what the board plans. We don’t rule out possible acquisitions, which could limit, at least temporarily, cash dividends to shareholders. But the company has consistently looked after its shareholders, and we expect that overall trend to continue. While we like and want the dividend, we think our real profits will come by way of capital gains in the share price.

Adding further value for shareholders, the company also just bought back about 10% of the stock. Some investors

overlook the value in share buybacks. But think of it like this: When a company repurchases shares, it reduces the number of shares outstanding. If you purchased shares prior to a share buyback, your slice of the company just got a little bit bigger. And it didn’t you cost a dime.

This business is as solid as you’ll find anywhere in the sector. Management is performing well. And we’re convinced it will continue to secure new business as energy projects continue to grow around the world. Emerging economies are starting to consume more energy and that requires more facilities and maintenance. We don’t see any slowdown for these projects over the next decade at least. Duro Felguera has proved its ability to secure large and lucrative contracts at international levels.

We think Duro Felguera is world-class.

Buying a €756 million ($1.03 billion) market-cap company with €121 million ($165 million) in net cash on its balance sheet, with growing sales, earnings, and backlog makes good investment sense to us.

When we can get it for low single-digit earnings multiples, it really gets our attention.

Looking at the valuation metrics for companies like Duro Felguera, we like to compare its enterprise value (EV) – that’s market cap plus debt minus cash – with earnings before interest, taxes, depreciation and amortization (EBITDA). We aim to buy companies when the EV is 10 times EBITDA or less. As you can see, Duro Felguera’s EV equals around 5.3 times its EBITDA right now.

Duro Felguera Fundamentals

For the period ending 9/30/2013

Amounts in millions of euros (except last price) most recent

Market cap. € 756

Enterprise Value € 635

Last Price € 4.72

Sales LTM € 793

EV/T12M EBITDA 5.3

Price Earnings Ratio (P/E) 6.5

Price to Book Ratio 2.5

Price/Sales 0.8

Dividend Yield 6.8%

Return on Equity 40%

Return on assets 9.4%

Total assets 1095

Cash & equivalents € 341

Total debt € 220

Backlog (millions of Euros) € 1,870

Source: Bloomberg

LTM = Last 12 months

T12M = Trailing 12 months

According to data compiled by Bloomberg, over the last 10 years, that ratio has averaged around 9x... And at the end of 1996, its ratio was 7.3x.

And global engineering peers – including our flagship newsletter Stansberry’s Investment Advisory portfolio holding Chicago Bridge and Iron (NYSE: CBI), Foster Wheeler, KBR, and the Spanish firm Tecnicas Reunidas – trade for an average EV/EBITDA ratio of nearly 10x.

Sooner or later, we believe the market will return the company’s valuation to at least its 10-year average. Assuming everything remains the same within its capital structure, our calculations would put its share price at around €7.50 ($10.31) – 60% higher than today. In our view, that would still be fairly priced compared with its peers around the globe. As sales and earnings grow, so too will its share price.

Action to take: We recommend you buy Duro Felguera (MDF.MC) up to €5.25 per share. Please use a 35% trailing stop loss.

Portfolio Update

Metka (METKK.AT) released third-quarter earnings. Sales and EBITDA fell slightly for the nine months ending September 30, compared with the same period last year. Net profit, however, came in about 11% higher than the same period last year. It held net cash of around €131 million ($180 million).

The company won a new contract in Algeria worth about €175 million ($240.7 million) to the firm, and its backlog now sits at €1.7 billion ($2.3 billion) – up from €1.4 billion ($1.9 billion) when we recommended the stock. The company says that figure doesn’t include a recently signed project in Iraq, on which it’s collaborating with Chinese firm Sepco.

Shares have pulled back recently and now trade slightly under our buy-up-to price of €12.50 ($17.19).

Our liquid petroleum gas (LPG) shipper StealthGas (Nasdaq: GASS) earnings came in with revenues for

the three-month period a fraction down compared with last year. Net income for the nine-month period came in at $15.7 million compared with $21 million last year. CEO Harry Vafias said he expected the drop due to some seasonal variations. However, he said the LPG fundamentals remain positive and expects trade to increase over the next two years.

Our view remains the same. This is a small but growing sector in the global energy market. The world will need more LPG ships, and StealthGas is perfectly positioned to capitalize on that demand.

As we go to press, the company just announced a public offering of 10 million shares. The market hates the news and is selling off the stock. We don’t like seeing dilution, either. But as we mentioned last month, the company recently acquired 15 new shipping vessels and will use some of the funds from the offer for vessel acquisitions.

The shipping industry is capital-intensive and often requires new debt or equity financing to expand and grow. The shares closed yesterday at $11.70 and have sold off about 8% at the time of writing. We’ll continue to monitor the situation. But as mentioned, our view remains unchanged on StealthGas and the industry in general. We think the selloff will provide investors who have not yet bought into the stock a great buying opportunity.

What’s next...

Recent investor activity brought us to Spain this month, which found us looking around the property and construction sector. We’re continuing to look into the property sector and we’re certain we’ll have more to report in the coming weeks.

Greece, Italy and Brazil also remain on our radar, and we’ll have more bargains to uncover in these markets over the coming weeks and months. Brazil’s real interest rates have popped a little which has seen the Brazilian Stock Exchange Ibovespa drop almost 10% since October.

As we’ve mentioned previously, if you live in any of these regions, please reach out to us. We’d love to hear from anyone who has local insights or could introduce us to people in business there. You can e-mail us at www.sbry.co/LohrQn.

Thank you for joining us at Stansberry International.

Regards,

Porter Stansberry and Brett Aitken December 10, 2013

Stansberry International Portfolio Review

Stansberry International Model Portfolio

Prices as of December 9, 2013

Exchange Symbol Ref. Date Ref. PriceRecent Price

Dividends Description Action Return

Metka Athens METTK 09/27/13 € 12.20 € 12.28 $0.00Energy Infrastruc-

tureBuy 0.7%

StealthGas Nasdaq GASS 11/01/13 $11.56 $11.68 $0.00 LPG Shipping Buy 1.0%

Duro Fel-guera

Madrid MDF 12/09/13 NEW € 4.72 $0.00Global Engineer-

ing (EPC)BUY NEW